A Decentralized Iron Cage: Do Chinese Local Officials Comply with the Central Government?

Abstract

<p>This paper contributes to the literature in nancial aid and authoritarian institutions.</p><p>For a long time, scholars are debating whether nancial aid is able to facilitate</p><p>development and governance. Though abundant evidence is provided, the answer is</p><p>still inconclusive. On the other hand, scholars investigating China argue that the</p><p>leadership uses various institutions to ensure local ocials' compliance. In this paper,</p><p>we nd that the nancial aid does not bring a positive impact and the central</p><p>government in China does not have enough monitoring capacity to force local o-</p><p>cials to comply. We study a redevelopment program established by Chinese central</p><p>government after the 2008 Wenchuan earthquake. By adopting a geographic regression</p><p>discontinuity combining with a dierence-in-dierences design, we show that</p><p>the redevelopment program does not signicantly develop the disaster area. On the</p><p>contrary, the evidence implies that the economy in the disaster area is worse after</p><p>receiving the aid. The results imply that local ocials do not follow the central government's</p><p>regulations and misuse the aid money for other purposes. In the future, we</p><p>expect to further investigate through which mechanism do local ocials undermine</p><p>the existing institutions.</p><p>iii</p>